MA Insurers, Hospitals Face Surcharges Under Cost-Control Bill

A bill passed Tuesday by the Massachusetts legislature to contain healthcare costs could leave insurers and large hospitals holding the bag for $225 million in surcharges over four years. Governor Deval Patrick (D) is expected to sign the bill into law.

The surcharge would be levied against health insurers($165 million) and larger hospitals ($60 million) to fund several provisions of the bill, including the creation of a $60 million prevention and wellness trust and $135 million in infrastructure improvements to community hospitals.

The trust monies would fund state grants for community-based prevention, public health, and wellness efforts to reduce the rates of costly preventable chronic diseases, such as obesity, diabetes, and asthma.

Health plans are predictably unenthusiastic about the surcharge. "We don't question the usefulness," explains Eric Linzer spokesperson for the Massachusetts Association of Health Plans, a trade organization. "But if it's for the general public good, then it's something we think the state should fund."

Payers may opt to cover their share of the surcharge in a single lump sum due in mid-2013 or over four annual payments.

S 2400 is being touted as the first effort by a state to rein in healthcare costs. It is considered a natural progression of the state's landmark 2006 healthcare reform bill, signed by then Gov. Mitt Romney (R), which includes an individual mandate. That legislation is recognized for expanding health insurance coverage, but has been criticized for doing little to control healthcare costs, which have reportedly increased an average of 6.4% per year.

Under S 2400, increases in healthcare spending would be linked to the state's gross state product (GSP) until 2017 and then slightly below the GSP through 2022. Supporters predict that it could reduce healthcare spending by $200 billion over 15 years.

A commission will be established to monitor healthcare costs and all healthcare entities—including health insurers—will be expected to comply with the performance targets or face fines of as much as $500,000. Although insurers aren't directly involved in the delivery of care, Linzer explains that because the commission will use a total system metric to assess performance, health plans must also meet the reduction targets.

Other provisions of the 349-page bill that address health insurers include:

• A requirement to disclose out-of-pocket costs for proposed healthcare services in a readable and understandable format
• Extension of provisions of the small business health insurance legislation passed in 2010 that require the state Department of Insurance to review healthcare premium filings.
• Extends state DOI authority to help mitigate and stabilize large spikes in premium increases from year to year.
• Increases to 14% from 12% the minimum premium savings for tiered or selective network healthy products.
• Creates a smart-tiering plan where healthcare services are tiered and member cost sharing is based the tier placement of the services

Linzer told HealthLeaders Media that for payers, one upside of the legislation is the bill's recognition that the market strength of some providers is driving higher healthcare costs. The bill creates an 18-member special commission to review price variations among providers and to look at the feasibility of requiring insurers to separately contract with each location for a multi-location provider to reflect geographic differences in provider costs.

Martha Coakley, the state‘s attorney general, published in 2010 a report that linked the higher reimbursements received by some health facilities to their expanded markets and not necessarily to the care they delivered.

S 2400 faced limited legislative opposition. Gov. Deval Patrick (D) has until Aug. 10 to act on the bill, which he supports.